TEHRAN- As sanctions on Iran intensify with the reactivation of the UN snapback mechanism, questions arise about their long-term economic and geopolitical consequences for the country. The measures, targeting Iran’s trade, defense, and financial sectors, have sparked debates about their impact on ordinary citizens and the nation’s capacity for innovation. Amid these challenges, understanding Iran’s position in a shifting global landscape is critical.

To shed light on these complex issues, Tehran Times conducted an exclusive interview with Prof. Dr. Mohammad Reza Farzanegan, a renowned Professor of Economics of West Asia at the Center for Near and Middle Eastern Studies (CNMS) at Philipps-Universität Marburg, Germany. A leading scholar in West Asian economic dynamics, Professor Farzanegan’s research examines the interplay of sanctions, social structures, and regional development, offering critical insights into Iran’s economic resilience and vulnerabilities.

In this first part of a two-part series, Professor Farzanegan provides a comprehensive analysis of the snapback mechanism’s effects on Iran’s economy, from trade disruptions to inflation and the erosion of the middle class. He also explores the hidden costs of sanctions, including lost opportunities for technological advancement. 

The second part of this engaging discussion, delving deeper into Iran’s strategies for navigating these pressures, will be published in our upcoming edition.
Below is the full text of the interview:

From your perspective, what long-term impact will the snapback mechanism have on Iran's economic and geopolitical situation? 

With the reactivation of United Nations sanctions on Iran, a range of economic consequences can be anticipated. My recent focus has been on the extent to which different segments of Iranian society may suffer under these renewed sanctions. Importantly, the effects will not be uniform across all categories of sanctions.

Some measures specifically target Iran’s defense capacity, including its missile industry and nuclear program. These impose restrictions on Iran’s access to conventional weapons and international markets. However, this is not entirely new. Even after the JCPOA, Iran remained largely disconnected from international arms markets. For this reason, I do not expect major new consequences for Iran’s defense capacity. Similarly, the impact on Iran’s nuclear program may be limited. Much of its progress has relied on domestic resources, and recent U.S. military strikes have already caused damage to nuclear facilities. In the short term, therefore, the additional sanctions may not be decisive in this area.

More problematic are the sanctions related to transportation inspections and financial restrictions. Here, there is a key difference compared to unilateral U.S. sanctions: the new UN measures oblige all 193 member states to enforce inspection controls on Iranian trade. In principle, this means any member state can demand inspections of Iranian imports and exports. Whether this will be implemented consistently in practice remains uncertain, but the legal obligation exists. Such measures could create delays in trade, increase transaction costs, and force Iran to offer larger discounts to trade partners aware of its constrained position.

For Iranian consumers, these sanctions are likely to be particularly harmful. Higher transaction and intermediary costs will fuel inflation, further eroding purchasing power. Financial sanctions, by contrast, may have a more marginal effect. Even before these UN measures, Iranian banks and citizens faced severe restrictions in accessing international financial systems. New constraints might make it more difficult for Iranians abroad to open accounts or for smaller European banks to maintain limited ties with Iran. Yet, given the pre-existing financial isolation, the incremental damage will likely be modest.

In sum, while sanctions on defense and nuclear capacities may have limited additional impact, the trade-related measures, particularly inspections and associated transaction costs, pose the greatest threat to the Iranian economy and ordinary consumers.

What impact will the continued sanctions have on Iran's capacity for technological development and innovation?

We are now in a period defined by rapid innovation, especially in artificial intelligence. In the Arab countries of the Persian Gulf region, we see governments investing heavily in AI. Just a few months ago, Donald Trump visited Saudi Arabia and the United Arab Emirates, with AI as one of the central topics. These technologies require significant capital, and the Persian Gulf countries are well positioned to attract investment thanks to subsidized energy and favorable conditions for international tech companies. They are not only building domestic capacity but also investing in AI markets in the United States and China.

For Iran, the situation is very different. The persistent risk for foreign investors makes it extremely difficult to attract international investment in this sector. As a result, Iran risks falling behind its neighbors. This is another hidden cost of sanctions. It is not just about negative effects on macroeconomic indicators, it is also about lost opportunities. While neighboring countries advance, Iran loses the chance to narrow income gaps or benefit from regional technological progress.

Developing innovation requires large-scale investment and long-term commitments. Although Iran has domestic resources, the incentives to allocate them to long-term, high-risk projects are weak under current conditions. In a sanctioned economy with inflation and price instability, investors tend to favor short-term or speculative activities. Rent-seeking behavior increases, startups struggle to survive, and the environment for serious technological progress deteriorates.

In short, sanctions do not only constrain current economic performance. They also discourage the kind of investment and innovation that could shape the future. 

What effects will continued sanctions have on the standard of living, employment, inflation, and access to essential goods for the Iranian people? 

That is an important question. Inflation is very visible in Iran. According to the Statistical Office, the annual inflation rate in September was around 45 percent compared to the same month last year. This is a heavy burden on households, especially those with fixed incomes, whose purchasing power has been severely reduced.

One driver of this inflation is the depreciation of the Iranian rial. As the currency loses value, imported goods become more expensive, and these costs are passed on to consumers. The reactivation of UN sanctions is likely to intensify this problem, particularly because of their impact on Iranian oil exports. While countries such as China publicly oppose the UN measures, in practice they can use them as leverage, demanding larger discounts on Iranian oil. That reduces Iran’s oil revenues, weakens the supply of foreign exchange, and puts additional pressure on the currency market. Limited supply of hard currency, combined with rising demand, further accelerates inflation.

The employment effects are uneven. Service sectors, which rely mainly on the domestic market, have remained relatively stable in past rounds of sanctions, and agriculture is more affected by climate conditions than sanctions. The greatest damage will likely occur in industries dependent on imported inputs, foreign technology, and international partners. 

Sanctions also affect different social groups in unequal ways. Youth unemployment in Iran is already high, particularly among women, and sanctions exacerbate this problem. Women and young people often lack the networks and resources to navigate crises, leaving them disproportionately vulnerable. Meanwhile, some groups benefit from sanctions, through rent-seeking or access to privileged markets, but they represent only a small minority.

The middle class bears the heaviest burden. Our research shows that sanctions have steadily eroded its position, pushing many households downward into poverty. Some members of the middle class migrate abroad, while others fall into low-income groups. This decline has broader consequences: the middle class has traditionally been a key driver of innovation and technological progress. When it loses financial stability and resources, the potential for innovation in Iran is also undermined.

This, in essence, is the broader picture: sanctions not only raise inflation and weaken macroeconomic stability but also reshape the social structure by hollowing out the middle class and eroding the foundations of long-term economic development.

*************CAPTION: Photo shows people in a market in Tehran